A tax on every deal conducted by the financial industry would curb the excessive power of Wall Street, avoid the need for swingeing cuts in public spending and pay for the west's unfulfilled promises to poor countries, one of the world's leading economists saidtoday.

Jeffrey Sachs, economics professor at Columbia University in New York, told a London audience that the so-called Robin Hood tax was a means of exercising control over bankers and ensuring they paid the right amount of tax.

"Wall Street has had the most profitable year in its history. It made profits of $55bn (£37bn) in the midst of the biggest downturn since the Great Depression," Sachs said, adding that the profits had only been possible because of taxpayer bailouts and the zero interest-rate policy pursued by the Federal Reserve, the US central bank. "Bankers are brazenly smirking as they pocket large amounts of our money."

A tax on all financial transactions is one of the options being considered by the leaders of the G20 developed and developing nations in the wake of the financial crisis of the past two-and-a-half years. Barack Obama has expressed support for a levy on banks that would pay for any future bailouts, but France and Germany favour a transaction tax.

With the International Monetary Fund due to produce a report to the G20 next month, Sachs said that a Robin Hood tax levied at 0.05% on every transaction would help countries repair the damage to their public finances caused by the recession. "We need the money," he said ."The financial sector is under-taxed. It is out of control."

Tim Geithner, the US treasury secretary, is deeply sceptical about a transaction tax but Sachs said Europe should try to shame the US into action. "Europe can and should lean on my country and say 'you get on the case too'."

Sachs said later that if Europe ran up against intractable US opposition to a transaction tax it should be willing to go it alone in a "coalition of the willing".

Wall Street had become so "politically powerful that it has written its own ticket for the past 25 years in a way that's shocking. The results are shocking. The lack of political responsibility is shocking."

The Robin Hood tax was an attempt to fight back, Sachs said. "It would be a low tax harmonised across countries. It is a progressive and non-distortionary tax."

Sachs said one use for the extra tax revenue was to meet the promises made at the G8 summit in Gleneagles in 2005 to double aid to Africa to $60bn. "We are $20bn short of that promise."

Sachs said the crisis had been caused by an unregulated financial system in which the market in credit default swaps had grown from nothing to $62tn – equivalent to the output of the global economy – over the past decade. "It happened without one regulator asking one single question. It was a shocking dereliction of responsibility."

The Royal Society of Arts event was also addressed by the actor Bill Nighy, star of a Richard Curtis film supporting a Robin Hood Tax. "It's a very simple and beautiful idea," Nighy said. "Its time has come."